Uchumi’s new CEO unveils raft of turnaround plans

Saturday December 5 2015

Uchumi Supermarkets Group CEO Dr Julius Kipng’etich at a company function. He is flanked by director Margaret Kositany and COO Willy Kimani. PHOTO | FILE

In Summary

Uchumi has 2,400 members of staff in Kenya, having laid off 1,231, and some 746 employees in Uganda and Tanzania.

In Kenya, Uchumi will also use technology to reach a wider market and open smaller stores.

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By SCOLA KAMAU

Uchumi Supermarkets will reopen its stores in Kenya and fully restock them by the first quarter of 2016 while its Ugandan and Tanzanian businesses could be considered for a strategic partnership as the regional retail chain seeks to turn around its performance.

In Kenya, Uchumi will also use technology to reach a wider market and open smaller stores, chief executive officer Dr Julius Kipng’etich said.

The technology strategy will ride on the penetration of smartphones in East Africa as Uchumi struggles to attract volumes and boost performance after the once-leading retail chain closed down operations in Uganda and Tanzania and shut two branches in Kenya.

Uchumi has 2,400 members of staff in Kenya, having laid off 1,231, and some 746 employees in Uganda and Tanzania. In October, Uchumi announced it had closed down six outlets in Tanzania and five in Uganda while Kenya saw two outlets shut.

This saw the fourth-largest Kenyan retail chain post an after-tax loss of Ksh3.4 billion ($33 million) in the year to June following a decline in revenues.

However, more employees are being recruited in Kenya in anticipation of the December holidays and the back-to-school season in January and February. The Kenyan business accounts for 95 per cent of Uchumi’s portfolio.

Focus is on Kenya

“The focus now is on Kenya’s recovery, with the target being the youth,” said Dr Kipng’etich.

“We want to consider having local partners in Uganda and Tanzania but, meanwhile, we are liquidating assets and settling debts.”

The partnership in Uganda and Tanzania could involve selling shelves to manufacturers or selling a stake to local investors, Dr Kipngetich told The EastAfrican.

He would, however, not divulge the value of the assets despite the two subsidiaries reported as gobbling up more than 25 per cent of the group’s operating costs.

In Tanzania, the liquidation process to raise money for salary, rent and supplies arrears is ongoing while a liquidator for the Ugandan shop was appointed last week.

Whereas its debts in Kenya have been quoted as hitting Ksh1.8 billion ($17.6 million), it was not clear how much the retailer owes in Uganda and Tanzania. In Uganda, former employees are in court to demand terminal benefits of up to $61,274 (Ush203 million) while in Tanzania the retailer is said to owe suppliers and landlords $91,176 (Tsh190 million).

But this is not the first time Uchumi has experienced financial trouble since it was established in 1976. In 2006, Uchumi was placed under receivership over some Ksh2.2 billion ($22 million) it owed to suppliers and KCB and PTA banks.

Uchumi shares were suspended from trading on the Kenyan bourse after the company closed its stores following an expansion plan that backfired, leading to a Ksh1.2 billion ($12 million) loss in 2005. The government then injected Ksh675 million ($6.7 million) into its revival.

Last year, Uchumi raised Ksh1.66 billion ($16.6 million) in a rights issue that was oversubscribed by 83 per cent but the management, under Joseph Ciano, allegedly mismanaged the funds, partly plunging the company into the current situation.

The money, which was raised for expansion, and refurbishment, cannot be fully accounted for. Mr Ciano was replaced by Dr Kipng’etich.

Analysts however say selling non-core assets and implementing a calculated expansion plan could save the retailer from plunging into a further mess. The overhaul on the balance sheet through sale of their fixed assets such as land and properties could help end financial woes occasioned by supplier debts and high cost of financing, they added.

“The challenges that Uchumi has been facing have been accelerated by the expansion seen over the years, in addition to holding of expensive assets on their books, which have led to poor cash flows,” said Mercyline Gatebi, an analyst with Genghis Capital.

Dr Kipng’etich, who left the post of chief operating officer at Equity Bank Group to take up the Uchumi appointment in August, plans to open smaller shops in smaller towns owing to the low numbers of clients in those areas.

Model is costly

It however remains to be seen whether Uchumi will succeed given the market experience of competitors. According to Nakumatt Holdings, its regional competitor, the small-shop model is costly as resources are used to deliver small quantities in various locations without satisfying the customer. The operating overheads are correspondingly higher than with the big stores.

Last year, Nakumatt introduced “convenience stores” — small shops in places such as the Nairobi suburbs of Kahawa Wendani and Lavington — stocked with particular products, but they did not last.

“Due to customer demand in all the locations, the stores have evolved into fully fledged supermarkets,” Thiagarajan Ramamurthy, Nakumatt’s regional operations and strategy director, observed.

“The convenient stores have grown to supermarket level, holding up to 10,000 storekeeping units (SKUs) from less than 4,000 SKUs to match demand.”

Uchumi would not divulge details of its medium shops, with Dr Kipngetich only saying during an interview with Kenya’s Citizen Television last week: “We want to open more stores in Nairobi, Mombasa, Kisumu and Nakuru and go for smaller stores in other towns that cannot service huge stores.”